Tutorial Team J

Tutor: Camilo

U 4833834

Introduction In 2011, one of the world largest retail companies, War-Mart had a net income of $15,355 million and was being ranked as the Americans largest company by Fortune Magazine. In addition, the company boosted its net sales by 3.4% to $419 billion and its operating income has risen to more than $25 billion1. The success of Wal-Mart transforming from a small discount store to the worlds second largest company and having the ability to maintain its profitability can be traced to its 4 main capabilities: (1) strong bargaining power against suppliers, (2) well-built logistics system, (3) efficient information technology, and (4) successful human resources management and its effective company strategies. In order to sustain its position as the world leading retail company and increase its profitability, Wal-Mart has to increase its product differentiation, merge with global retailers and increase its labour relations.

Industry Structure According to the retail industry studies2, the American industry has been heavily dependent on the retail sector. In 1999, the retail industry accounted for 32% of the US GDP3 and Wal-Mart is one of the biggest players in this industry. Unlike other retailers such as Toys R Us, WalMart sells a wide range of consumer goods instead of focussing on any specific goods. The entry barriers in this industry are high because it requires new entrants huge amount of capitals, complicated distribution networks, data mining system matching suppliers and customers information, and an efficient economic of scale to survive. The exit barriers would be large in

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Wal-Mart 2011 Annual Report. Lisa H. Wilson, Retail Industry Study, SBTDC, January 2011, p1. 3 Abid.

Tutorial Team J

Tutor: Camilo

U 4833834

this industry as well due to the huge amounts of capitals and goods in the existing operations. Therefore, the threat of new entrants for Wal-Mart would be low.

Company Strategy Wal-Marts business strategy is absolutely be the Low Cost Leadership and the centrality of Wal-Mart for the past 50 years has always been Everyday low prices. Cutting its suppliers price to the lowest has driven the company to the leader of the industry. The company has built enough networks with its suppliers and goods manufacturers that allow it to lower its cost and save more money for the consumers. Furthermore, the other resources and capacities of the company have also benefit of its Low Cost Leadership positions and drive up its profitability.

Capabilities (1) As Wal-Mart dominating a huge share of U.S. retail market, it is able to take advantage of economies of scale of its suppliers and eliminate the supplier power and make the price of its goods as low as possible and achieve its cost leadership strategy. In addition, Wal-Mart restricts its purchase from any of its particular suppliers to sustain its bargaining power over the suppliers. The largest supplier in the company is Green Dot Corporation, a prepaid financial service company and it only accounts for 6.68% of Wal-Marts total purchase. (2) Wal-Mart has a complete logistic system. It decreases companys storage cost, delivery costs and distribution costs and also eliminates stock-outs. This causes the company has one of the highest inventory turnover and greater control on its inventories and it leads to greater ability of making its price of goods low. (3) In the 1970s, Wal-Mart was the first retail company in the industry adopting computer system for its operating system and inventory control. By now, the advanced information technology allows Wal-mart to collect and analyse the market and its own information, increase
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Tutorial Team J

Tutor: Camilo

U 4833834

the effectiveness of its logistic system and also allow the suppliers to plan their production and therefore keep Wal-Marts inventories under control. This technology system does not only lower the cost of the company, it strengthens the competitive advantage of Wal-Mart as well. (4) Wal-Marts fast response and effective management style has contributed an extent to its success. Unlike other discount retail companies that have their decisions made at the head office, each of the individual store managers is given the right to make decisions related to product purchasing and pricing. The employee benefits, such as company health plan, stock purchase plan, etc have increased the loyalty of the employees and risen the productivity of them.

Weakness (1) Wal-Marts international expansion is not that profitable as expected and the profits earned overseas are not consistent. It left its Korean and Japanese market in 2006 due to the poor response from the shoppers. Furthermore, it fail to compete with the local competitors in the European countries and sold 85 stores to a German company, Metro after experiencing a huge lose for 8 years. Being a international retailer, Wal-Mart is exposed to political problems in the country it run its business. (2) Wal-Mart was accused by federal lawsuit of discrimination against women, under-age labour, job training, etc and this causes negative effects on its public image. (3) By cutting its suppliers and manufacturers price, the suppliers and manufacturers will find ways to reduce their production cost, such as using cheap, low quality inputs. This would reduce the quality of goods that Wal-Mart sells and will definitely affect its sales and profit in the long run. (4) Wal-Mart will always be the target of its competitors in the retail discount industry as it is the leader of the retail market.

Tutorial Team J

Tutor: Camilo

U 4833834

Recommendation (1) Wal-Mart should acquire smaller retail chains in the U.S. and also internationally. This can allow the company to exploit the economies of scale, increase its market share and reduce the number of competitors. Additionally, this will give Wal-Mart the ability to learn about the preference of shoppers outside the American markets and adopt the native management style of overseas countries. (2) Wal-Mart should expand its technology systems in every segments or departments of its company in order to increase the efficiency and productivity of its resources and capabilities. (3) Wal-Mart should conduct a qualitative investigation on the problem of being accused for discriminating against women in pay and correct any wrongdoings it gets throughout the investigation. (4) Wal-Mart should build a more friendly and warmer employer image to the public by being community concerned and environmental friendly by returning some of its profits to the society. (5) Sam Walton played a vital role in Wal-Mart and his business principles have brought WalMart to where it is today. Thus, the companys centrality and strategies should always stick to his beliefs and rules.